Cola wars Continue:

Coke & Pepsi

in the 21 Century
st
 Board Plan
Learning / Teaching
Objectives
Session Plan
Questions

Facilitated by
Jewel Kumar Roy
Or…
6
 Learning/Teaching
Objectives
To understand How & The relationship
Why different Industry between competitive
structures offer varying interaction and industry
opportunities for firms to profits.
achieve competitive How globalization can
advantage. impact industry
Understanding the structures.
relationship between
different stages of the
value chain in an
industry, including an
introduction to the
incentives for vertical
integration.
 Questions

Why is the soft drink industry so profitable?

Compare the economics of the concentrate
business to the bottling business. Why is
profitability so different?
How has the competition between Coke &
Pepsi affected the industry profits?
Can Coke & Pepsi sustain their profits in the
wake of flattening demand and the growing
popularity of non-carbonated drinks?
Analysis of the Industry
Barriers to Entry
Substitution
Suppliers
Buyers
Final Customer
Rivalry
*

*existing or being everywhere, especially at the

same time; omnipresent
 Tools of War:
How intense is the competition?
What are the “weapons” they use
to fight?
 Tools of War:

Who has been

winning the war
and… Who has
been losing?

“You’re fired, Jack. The lab

results just came back, and you
tested positive for Coke.”
 Competition is largely focused
on…?

Bottom Line! Not On Concentrate Prices…

Fountains
 A Quick Recap…
Constrained Competition
High BTE
Locked in Buyers
Secret Ingredients
Lots of substitutes, but advertising &
widespread distribution limited the impact…

to sum up!!!
A Great Business
 Summary
Coke & Pepsi are clear examples of how
firms create and exercise market power.
To really understand the opportunities
for strategy, we have to look at the
underlying economics of the firm and the
industry, and its related (upstream &
downstream) parts.
 Summary
Coke & Pepsi did not inherit this
business; they created it.
Part of their ongoing success will be
the function of their abilities to structure
not only their businesses but also the
industry as a whole.
 Coke & Pepsi are the classic
case (no pun intended) of smart
competitors!!!
When they go to war, they kill
the bystanders… not
themselves!!!
Muhtar Kent
President
and Chief
Executive
Officer
2012
 We are a
company full
of strong,
"Together we
talented
are all building
individuals
starting at the on the
top of our platform of
organization. human,
Get to know Indra Nooyi environmental
the inspiring Chairman and and talent
people helping Chief sustainability
lead PepsiCo Executive while
on its continuing to
Officer of
'Performance deliver great
with Purpose' PepsiCo.
results."
journey.
Internationalizing the Cola
Wars (B):
The Battle for India
 Introduction
By 1987, the Cola Wars between Coke and
Pepsi had been fought on every major
market outside the United States, with the
exception of India. Both Coke and Pepsi
departed India prior to 1987, Coke in 1977
and Pepsi in 1961, and were to return in
1993 and 1989 respectively.
With a growing population of over 800 million,
rising consumer affluence, and
liberalizing economic policies from Parliament,
the percapita consumption of only three servings per
year belied India’s commercial reality.
While historical protectionist sentiments were in part
responsible for the exit of international competitors,
Indian soft drink sales, in the absence of foreign
producers, were stagnant from 1973 to 1990.
Closed markets in this case, left the local industry flat.
 It was into this setting that both
Coke and Pepsi were to engage in
their bout for the last soda frontier.
Competition in the infant Cola Wars
in India was described in one word:
fierce!
 The Returnable glass bottle dominated
packaging in India. While the start-up cost
of a modern bottling plant was similar to
that observed in the United States, an
additional outlay was required for
packaging.
 It was estimated that a minimum of
100,000 cases with bottles for 10 turns
stipulated an additional US$1.2 million.
 On average, a case for retail delivery was
priced between US$9-$10 excluding a US$2
deposit for the returnable glass.
 According to one observer, it was not
uncommon for bottlers to steal the bottles of
their competitors during peak season.
 “It’s easy. You just approach the retailer and
pay them double their deposit for your
competitors’ bottles. Without the bottle,
there’s no product in the market. This has
been normal practice for many years now ,”
noted one veteran of the Cola Wars in India.
Advertising campaigns employed were
backbiting and shrill.
Promotional activities for either Coke or Pepsi
had resulted in clashes.
For example, at Coke’s press conference
reintroducing the product into India, Pepsi
booked a neighboring hall and pirated
journalists on their way to the Coke event .
In Bombay, at a Coke-sponsored concert, Pepsi
reportedly caused a riot by giving free Pepsi to
the gathered crowd.
Thus the battle for India had begun.
Like the Cola Wars worldwide, Coke
and Pepsi adopted idiosyncratic
patterns towards their expansion in
India: Coke, in partnership with
Parle, was to expand its existing
bottling network through franchisees
while Pepsi favored direct ownership.
Though the current soda tussle was
held on the streets of urban centers
throughout India, a nationwide fight
is still on…
 Cola wars Continue:
Coke & Pepsi
in the 21 Century
st

But you…

Have a Great Day!!!